Rathblott v. Peoplestrategy, Inc.
| Decision Date | 04 March 2016 |
| Docket Number | CIVIL ACTION NO. 15-4293 |
| Parties | PAUL RATHBLOTT, Plaintiff, v. PEOPLESTRATEGY, INC., Defendant. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
MEMORANDUM
Plaintiff Paul Rathblott claims that he is owed thousands of dollars in interest payments because defendant, PeopleStrategy, Inc. (hereinafter "PeopleStrategy"), made a payment under a settlement agreement (the "Settlement Agreement") one day late. The Settlement Agreement requires that PeopleStrategy pay Rathblott a sum in periodic installments, which must be made "available" to Rathblott on the first business day of each calendar month. PeopleStrategy made a payment on April 1, 2015, but the bank transfer did not clear until the next day. Rathblott argues that the payment was late, which automatically imposes a higher interest rate on the unpaid balance. PeopleStrategy concedes that the payment was late, but argues that the parties bargained for a ten-day "Cure Period" to avoid precisely this sort of litigation.
Presently before the Court is PeopleStrategy's Motion to Dismiss Amended Complaint. For the reasons that follow, the Court grants the Motion and dismisses Rathblott's Amended Complaint with prejudice.
On a motion to dismiss, the Court accepts the facts alleged in plaintiff's Amended Complaint as true. The parties agree as to the relevant facts, and signed a stipulation to that effect. Pl.'s Resp. Ex. A.
On December 31, 2012, plaintiff Paul Rathblott and Peter Clarke1 agreed to sell their interests in a company, ERC Dataplus, Inc., to defendant PeopleStrategy. To that end the parties signed a Purchase Agreement. The parties also executed a promissory note (hereinafter the "Promissory Note"), pursuant to which PeopleStrategy agreed to pay Rathblott the money due to him under the Purchase Agreement.
A dispute arose as to the terms of the Purchase Agreement, the details of which are not relevant to this case. On September 24, 2013, PeopleStrategy filed a declaratory judgment action against Rathblott and Clarke, captioned PeopleStrategy, Inc. v. Paul Rathblott and Peter Clarke, No. 13-cv-5593 (E.D. Pa. 2013). The parties settled that litigation at a settlement conference held before United States Magistrate Judge Thomas J. Rueter on July 7, 2014. That settlement was memorialized by the Settlement Agreement executed on July 11, 2014.
The Settlement Agreement provides that PeopleStrategy pay Rathblott $900,000 in 72 monthly payments of $12,500, commencing August 1, 2014, plus interest each month at the rate of 1% per annum on the unpaid balance. Each payment is due on the first business day of the month, and a payment "shall be deemed paid only when available to Rathblott . . . in good,readily available funds" in Rathblott's bank account at TD Bank, N.A. The agreement also provides that "the annual interest rate shall increase to 6% per annum . . . as of the first payment default and shall thereafter apply to the unpaid balances until paid in full."
In addition, the total amount owing to Rathblott becomes immediately payable, or accelerated, upon a number of triggering events, including when PeopleStrategy "fails to make any payment of principal or interest when due (a 'payment default') and fails to cure such failure within ten days of the receipt of Notice thereof ('Cure Period')." The parties dispute whether the Cure Period averts acceleration only, or also averts the application of 6% default interest.
Finally, the Settlement Agreement states that the Promissory Note "would be deemed amended and modified to reflect the indebtedness amounts, interest rates and payment terms set forth in this Agreement . . ." "[I]n the event of a default" by PeopleStrategy, Rathblott "may proceed under this Agreement or the Promissory Notes, or both, as [Rathblott] determines."
The dispute in this case arises out of a payment due April 1, 2015. On that date, PeopleStrategy made a payment. However, the funds were not transferred by the bank into Rathblott's account until the next day, April 2, 2015, and were thus not "available" to Rathblott on the date the payment was due. According to Rathblott, the late payment automatically triggers the 6% default-interest rate for all payments due after April 2015. PeopleStrategy disagreed, and continued to make payments to Rathblott calculated at the 1% interest rate.
PeopleStrategy filed an action against Paul Rathblott for declaratory judgment on August 4, 2015 in Civil Action Number 15-4293. On August 11, 2015, Rathblott filed an action againstPeopleStrategy in Civil Action Number 15-4463. On September 4, 2015, PeopleStrategy moved to consolidate the two actions. The Court granted the motion by Order dated September 9, 2015.
PeopleStrategy filed a Motion to Dismiss that action on October 16, 2015. Rathblott amended his Complaint on October 30, 2015. As a result the Court denied the Motion as moot by Order dated November 2, 2015.
A preliminary pretrial telephone conference was held on November 5, 2015. At the conference PeopleStrategy agreed to withdraw its declaratory judgment action without prejudice, as set forth in the Scheduling Order dated November 9, 2015.
Presently before the Court is PeopleStrategy's second Motion to Dismiss, filed November 20, 2015. For the following reasons, the Court grants PeopleStrategy's Motion.
A Rule 12(b)(6) motion to dismiss tests the sufficiency of a complaint. To survive a motion to dismiss, a complaint must contain "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "In deciding a Rule 12(b)(6) motion, a court must consider only the complaint, exhibits attached to the complaint, matters of public record, as well as undisputedly authentic documents if the complainant's claims are based upon these documents." Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010).
To state a breach of contract claim under Pennsylvania law, plaintiff must allege: "(1) the existence of a contract, including its essential terms, (2) a breach of duty imposed by the contract and (3) resultant damages." Jacoby v. AXA Equitable Life Ins. Co., No. 13-cv-6511, 2014 WL 7058224, at *3 (E.D. Pa. Dec. 15, 2014) (quoting Omicron Systems, Inc. v. Weiner, 860 A.2d 554, 564 (Pa. Super. Ct. 2004)).
Ruling on the instant Motion to Dismiss "requires the [C]ourt to make a preliminary inquiry as to whether the contract before it is ambiguous." Hullett v. Towers, Perrin, Forster & Crosby, Inc., 38 F.3d 107, 111 (3d Cir. 1994) (citing Stendardo v. Federal Nat'l Mortgage Ass'n, 991 F.2d 1089, 1094 (3d Cir. 1993)).2 Id. (internal citations omitted).
Whether a contract contains an ambiguity is a question of law to be decided by the Court. Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 587 (3d Cir. 2009). The test for ambiguity is whether "the words of the contract are capable of more than one objectively reasonable interpretation . . . ." Baldwin v. Univ. of Pittsburgh Med. Ctr, 636 F.3d 69, 76 (3d Cir. 2011). "The Court should consider the specific language of the contract, any meanings suggested by counsel, and extrinsic evidence offered in support of each interpretation." Jacoby, 2014 WL 7058224, at *3. Courts should read contracts "to avoid ambiguities if possible." Accurso v. Infra-Red Servs., Inc., 23 F. Supp. 3d 494, 505 (E.D. Pa. 2014) (quoting Nationwide Mut. Ins. Co. v. Chiao, 186 Fed. App'x. 181, 185 (3d Cir. 2006)).
The Settlement Agreement sets forth two consequences if PeopleStrategy is dilatory in its payments: (1) the unpaid balance owed to Rathblott begins accumulating interest at an annual rate of 6% rather than 1% (default interest), and (2) the remaining balance is accelerated and becomes immediately due and payable to Rathblott. The parties agree that PeopleStrategy can avoid acceleration by curing a late payment within ten days of receiving proper notice from Rathblott (the "Cure Period"). The question in this case is whether PeopleStrategy's right to cure also protects it from default interest.
Pursuant to Section 3(c) of the Settlement Agreement, the 6% annual rate applies upon "the first payment default . . . ." Rathblott argues that PeopleStrategy defaulted because its payment was late, and that ends the inquiry; even though PeopleStrategy cured, it is still in default and must still pay default interest. PeopleStrategy responds that it should not be deemed to be in default because it exercised its right to cure. For the following reasons, the Court concludes that the unambiguous language of the Settlement Agreement supports PeopleStrategy's interpretation.
The purpose of a cure period is to eliminate a default and its attendant consequences, thereby restoring the parties to their pre-default positions. Rathblott, however, argues that the parties bargained for a cure period that does no such thing: PeopleStrategy would remain in default, despite exercising its right to cure. The Court rejects this argument based on the plain text of the Settlement Agreement.
It is a fundamental principle of contract interpretation that, where a contract uses a legal term of art, such as "cure," the Court should interpret that term "in accord with [its] specialized or accepted usage" unless doing so would render the contract documents irrational or inconsistent....
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